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Most advisory firms believe they know who the next generation is. They start with age – assigning labels such as G1, G2 and G3. The logic seems relatively straightforward. Older Baby Boomer advisors are the current generation, and younger Gen X and Millennial advisors comprise the next generation.
In practice, however, those labels often miss the point entirely.
On the one hand, you might have a 45-year-old career changer who only entered the advisory profession a few years ago. At the same time, you could have a 33-year-old advisor who joined your firm straight out of college and has already spent more than a decade advising clients, developing relationships, and mentoring new advisors at your firm.
Which one do you think represents the firm’s future leadership?
The answer really doesn’t have much (or anything) to do with age. The next generation consists of the people inside your firm who are capable of carrying the future of the business:
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Future advisors
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Future rainmakers
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Future team leaders
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Future firm leaders
And the industry needs them now more than ever. According to Cerulli, 100,000+ advisors are expected to retire over the next decade. That represents over 37% of the entire advisor workforce – professionals who manage more than 41% of advisory assets. McKinsey projects that by 2034, the industry could face a shortfall of 90,000 to 110,000 advisors if firms fail to step up their recruiting and development efforts.
This is not simply a workforce challenge, it’s a leadership development challenge that raises an important question for every advisory firm: Who inside your business is being prepared to lead the future?
From Lone Ranger to Legacy Leader
Many advisory firms were built by exceptional individual producers – founders who carried the responsibility for steadily cultivating client relationships and generating asset/revenue growth squarely on their own shoulders.
In my book You’ve Been Framed, I describe this phenomenon as the Lone Ranger model. The Lone Ranger builds their business on personal excellence and individual credibility. The capabilities and quality of the firm are inexorably tied to (and therefore limited by) the leader.
But enduring firms require a different model. The Legacy Leader builds an institution. He or she understands that long-term success depends on developing other leaders and transferring trust across the team. As Jim Collins wrote in Good to Great, “Great vision without great people is irrelevant.” Advisory firms that want to achieve enduring success must focus on leadership development long before succession becomes urgent.
The Cost of Waiting Too Long
I often have firms founders tell me they are looking for next generation leaders. But when I probe just a little bit underneath the surface, it quickly becomes apparent that what they really want is help. Someone to take meetings, service clients and lighten the founder’s workload.
Make no mistake: that’s delegation, not leadership development.
Leadership development requires intention. At ClientWise, we believe firms need to articulate the pathway to partnership early. Not promise it early, but articulate it early. Promising ownership prematurely creates entitlement and confusion. But failing to describe the pathway creates something worse…silence.
When talented professionals can’t see a path forward, they create their own narrative. They assume advancement is arbitrary. They assume founders will never step aside. And they assume leadership opportunities don’t really exist. Recent studies by Korn Ferry reflect the results of these misperceptions:
- 34% of firms report a shortage of high potential leaders because they’ve failed to identify talent internally; and
- Only 14% say they are confident they’re selecting the right people for leadership development programs.
In other words, more than one in three firms are overlooking the very leaders they’re going to need to rely on in the future.
Partnership Is NOT a Reward
What comes to mind when you think of any young professional making it to “partner?” If you’re like most people, you probably imagine that person putting in long hours and a level of effort that’s above and beyond the ordinary. You think of partnership as a reward for tenure, loyalty and proficiency.
But as Marshall Goldsmith clearly lays out in his book What Got You Here Won’t Get You There, “Success in the past is no guarantee of success in the future.” Technical success may build a strong advisor, but partnership requires true leadership. Partners need to:
- Expand the capacity of the firm
- Deepen client relationships and contribute to growth
- Develop and cultivate other professionals
- Always be thinking about the long-term health of the business
Partnership needs to be reframed as a business decision rather than a reward. Ownership should formalize leadership behaviors that already exist in the individual, rather than be used as a tool to cultivate those behaviors.
Through years of working with advisory firms, we’ve come to realize that there are essentially two types of firm partners and both are important to success:
Equity partners – Individuals who own part of the enterprise. They share in profits and losses and often participate in governance decisions.
Income partners – Professionals who operate at a partner level, but may not hold equity ownership. They lead client relationships, contribute revenue, mentor colleagues, and help grow the firm.
It’s a structure that’s common across many professional services businesses. For example, research shows that most large law firms maintain non-equity partner roles; allowing firms to recognize leadership contribution while reserving equity ownership for those who demonstrate long-term ownership readiness.
Larger advisory firms are increasingly adopting similar structures – with a growing number maintaining multiple levels of income partners along with a smaller number of equity partners. It’s an approach that allows firms to recognize leadership contribution, while still preserving flexibility in ownership design.
The Passage to Partnership
If partnership represents the destination, firms must first define and clearly articulate the path. It’s a journey that typically unfolds in stages:
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Contribution – First and foremost, candidates consistently produce value and contribute to the team
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Trust transfer – Clients increasingly show trust the individual and rely on his or her guidance
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Leadership behavior – They demonstrate an ability to elevate the performance of others and contribute to the direction of the firm
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Economic awareness – They grow to understand how the business works, including profitability, capacity, and growth
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Ownership readiness – And they continually demonstrate the maturity and judgment required to steward the enterprise
At this point, equity ownership becomes a logical next step. But leadership readiness isn’t achieved theoretically; it evolves through experience. Emerging leaders need regular and challenging opportunities to perform:
- Leading client meetings
- Managing client segments
- Mentoring junior professionals
- Leading internal initiatives
- Participating in strategic discussions
- Contributing to business development
These opportunities reveal judgment, preparation, and accountability, but too many firm founders delay them in an effort to protect the client experience. Ironically, however, it’s that very protection which tends to delay leadership development and puts the clients at greater risk of a business continuity disruption if anything should happen to the founder.
The unavoidable truth is that readiness only flourishes under responsibility. McKinsey’s research suggests that firms who succeed over the coming decade will be those who invest in recruiting and developing new advisors, while building team-based models to expand their leadership capacity.
Leadership development must begin long before succession becomes a pressing issue.
Clarity Creates Momentum
Nearly all enduring firms do something very simple. They articulate a path by saying to emerging leaders:
- Here is what partnership means at our firm;
- Here’s how people grow in the organization;
- Here are the capabilities we expect; and
- Here are the behaviors that matter.
Clarity gives talented professionals something to pursue. It also reveals the difference between individuals who want advancement and individuals who want responsibility.
Remember, the “next generation” isn’t defined by age but by readiness. It’s the person inside your business who can help carry the future of the firm. The person who earns trust, creates capacity, develops others, and thinks like an owner before becoming one.
Those are the professionals who belong on the passage to partnership. Not because they’re next in line, but because they are next in leadership. After all, the goal isn’t to create more partners, it’s to build an enduring firm.
Coaching Questions From This Article
- Who inside our firm is already demonstrating leadership behavior that we have not yet formally recognized?
- Have we clearly articulated what partnership means in our firm, or are our emerging leaders left to guess?
- What performative opportunities are we intentionally providing to test and develop future leaders before ownership becomes necessary?
